Photo: Jean-Marc Stenger, CIO for Alternative Investments at Lyxor, pick up the award in the ceremony. Lyxor AM Wins "Transparency" Award at Distrib Invest’s Ceremony
Lyxor AM won the Transparency award «Les Coupoles» in the “Integrated Financial Groups” category at Distrib Invest’s ceremony, which took place on June 18th in Paris.
The magazine Distrib Invest reward French fund distributors and fund selectors for the quality of their financial reporting.
In its category, Lyxor won this award ahead of La Française and Amundi. “This distinction confirms the success of Lyxor’s strategy, which is based on the quality and transparency of its investment solutions”, said Lyxor.
Jean-Marc Stenger, CIO for Alternative Investments at Lyxor, pick up the award in the ceremony.
In the statement after its July meeting, the Federal Open Market Committee altered language about the near-term path of interest rates by noting that a first policy rate increase would occur once there is ‘some further improvement’ in the labour market. Steven Friedman, Director, Official Institutions at Fischer Francis Trees & Watts (FFTW), subsidiary of BNP Paribas IP, believes that this set a fairly low hurdle for the start of policy normalisation and indicated that the committee believed the economy was approaching full employment.
“Last week’s July employment report provides Fed chair Yellen with additional comfort that commencing a gradual normalisation process should not derail the labour market and prospects for returning inflation to mandate-consistent levels in the coming years. Should the August employment report (the final one before the September FOMC meeting) show similar payroll gains, it certainly would seem to qualify as “some further improvement” in the labour market”, points out Friedman.
Other recent data should also provide the committee with confidence that the economy can withstand an initial rate increase in September and a very gradual normalisation thereafter. Recent construction, factory and trade data indicates that second-quarter GDP will be revised up to around 3%. In addition, while the price deflator for core personal consumption expenditures is not anywhere near the committee’s inflation objective, it has shown signs of stabilising in recent months – one of Yellen’s stated preconditions for beginning to raise rates.
The Fischer Francis Trees & Watts expert says that interest-rate futures now discount only a bit more than even odds of a September rate increase. That investors remain unconvinced of a September move reflects skepticism in the committee’s slack-based framework for inflation given that global disinflationary pressures emanating from China and elsewhere should keep US inflation low even as the economy moves past full employment.
In addition, investors appear concerned that declines in commodity prices could partly reflect a loss of global growth momentum and suppress inflation over the medium term. And an increase in US policy rates at a time when other G10 central banks are either easing further or maintaining accommodative policy fuels concern that policy normalisation may be difficult to sustain given the risk of renewed appreciation of the US dollar.
“It is difficult to find significant evidence that these concerns are affecting asset prices meaningfully. While the Treasury curve has begun to flatten in recent weeks, the pace of the move is similar to what was observed ahead of the tightening cycle in 2004 (see Exhibit 1 below). Similarly, major US stock indices are not far off of their recent peaks and have been weighed down primarily by energy-related stocks. Declines in longer-dated measures of inflation compensation are consistent with the renewed slide in energy prices. In short, markets appear to be preparing for an initial rate increase in a largely intuitive manner, and we remain far from seeing risks of a policy error reflected in asset prices”, conclude Friedman.
Photo: Trey Raatcliff, Flickr, Creative Commons. Renminbi Devaluation: The Impact, Country by Country
China has devaluated its currency, Renminbi. Theses moves shows China is using both domestic (fiscal, monetary) and external (currency) levers to support growth. CNY depreciation will have a negative impact on commodities (given China is the largest consumer) and commodity exporting countries -Indonesia, Malaysia-. If this leads to further easing from other countries, it will be positive for equities, says Mirae Asset.
Impact in China
PBOC’s weakening of CNY may lead to further depreciation, which might not be all negative. “Historically, we have seen currency adjustment as a beneficial tool to boost exports and therefore economic growth”.
However, the risks of currency wars remain. China is in a strong position to defend its currency thanks to it’s large FX reserves and low offshore borrowing. Rather than looking at USD/CNY, China might prevent further appreciation of REER. Emerging Asia constitutes about 20% of China’s total trade, with Europe and Japan accounting for around 40%, according to the experts.
Even if China does want to reverse the appreciation of CNY vs other Asian currencies, it would imply a ~10% depreciation in CNY. On various models, RMB is around 10% overvalued on an average of various frameworks.
“Overall, for the financial sector, we are entering into a lower growth environment, with the asset quality cycle turning and a not-so-conducive operating backdrop. As a result, we maintain an Underweight the financial sector. In such an environment we prefer countries where monetary easing will have the ability to deliver a boost to domestic demand and those with low credit penetration (India, Indonesia, Philippines). Apart from these countries, we continue to like Chinese life insurance companies where protection gap is significant and the industry is showing signs of turnaround for the past 18 months”, says Mirae Asset.
Negative for exporters and ASEAN countries
However on a broader macro perspective, it is negative for exporters to China (or countries with close linkages with China) like Korea, Taiwan, Hong Kong and Singapore. ASEAN may be impacted due to second order effects with their currencies depreciation and reducing the scope of interest rate cuts as currencies remains under pressure.
Regarding the US rate hike, “on the flip side, it might possibly lead to a postponement of US rate hikes, as strong USD and disinflation- ary impulse due to actions of various central banks (CN, EU, JP) might impact the conditions within the US. Furthermore, the notion of substantial real weakness in China (which the FX move indirectly signals) is, in itself, not inmaterial”.
Mirae Asset also analyses the impact of the devaluation in Renminbi, sector by sector:
Photo: YoTuT
. Nikko AM Appoints Sumi Trust as Fund Administrator
Sumi Trust Global Asset Services has won a mandate from Nikko AM Global Cayman, a subsidiary of Nikko Asset Management, to serve as their fund administrator and provide a full range of fund administration and asset support services.
SuMi Trust will provide fund administration services to Nikko Asset Management’s Japanese-domiciled and off-shore fund structures which will be launched in the future. Nikko Asset Management has entrusted six new funds, in addition to six existing funds from other administrators, to Sumi Ttust.
The funds, which are all Cayman-domiciled, together account for $2.7bn (€2.4bn) in AUM, with each following a dedicated investment strategy. These strategies include global and regional equities, currencies, fixed income and natural resources securities.
Nikko Asset Management, which holds assets under management of $161.9bn (€146.5bn) as of March 2015, is one of Asia’s largest, oldest and most respected asset management firms. Nikko Asset Management is part of Sumitomo Mitsui Trust Bank, which owns Sumi Trust Global Asset Services.
Nikko Asset Management’s decision demonstrates the benefits of the cross-integration of services between complementary business units within the SMTB group. Meanwhile, this recognition by the asset management firm underscores Sumi Trust’s ability to service funds trading a large number of different asset classes.
Hiromitsu Tanaka, CEO of Sumi Trust Ireland, commented: “With a track record of more than 25 years of providing fund administration support for both regulated and off shore fund structures, we’re very proud that Nikko Asset Management decided to entrust a greater share of their assets to Sumi Trust.
“Our fund administration business in Ireland has enjoyed tremendous success over the past year in attracting business from independent asset managers that are looking to launch new products and replace their administration partner in response to the increasing demands of the global financial services industry.”
Investors remain open to risk despite market jitters around crises such as China and Greece, according to the findings of the latest Risk Rotation Index by NN Investment Partners.
The research revealed that 28.3% of the panel of global institutional fund managers surveyed said that they had increased their appetite for risk over the previous six months compared to 18.3% who said that their appetite had decreased, leaving overall net risk appetite at +10%.
However, in spite of this confidence, investors have growing concerns over a potential Eurozone crisis, with 49% of respondents citing it as a ‘significant’ threat to their portfolios – up from 35% in the previous quarter – while one in eight (13%) view it as a ‘very significant’ threat.
Valentijn van Nieuwenhuijzen, Head of Strategy, Multi-Asset at NN Investment Partners, says: “A Eurozone crisis was viewed as significant threat by almost half (49%) of investors who appear to be approaching the current situation with both caution and confidence.
“Greece may have jolted markets but the Eurozone survived. The Chinese crisis – we think we can call it a crisis by now – is creating serious problems for the commodity exporters and the countries that sell the most capital goods to China.”
“Despite market jitters investors still have confidence in the market and retain some optimism with the recent pick-up in growth in the US and Japan. As we are back in calmer waters (at least temporarily), we upgraded equities from neutral to a small overweight which was our stance before Greece and China spoiled the party.”
Away from the Eurozone, other potential dangers such as a black swan event (24%) and a Chinese slowdown (21%) were also named by investors as events of which they were wary.
As well as indicating a preference for risk amongst investors, the research also hinted at growing stability within investors’ portfolios. Indeed, more than half (53%) of the panel stated that they had not adjusted their risk profile over previous six months – the highest proportion since the index was launched in 2013.
In order to mitigate potential risk over the coming months, investors appear to be most in favour of using multi-asset (74%) and equity strategies (56%). When broken down there is little difference in preference between balanced and total return multi-asset strategies – 37.3% vs. 36.3% – meaning that individually both strategies are more favoured amongst investors than illiquid assets such as private equity and mortgages (26%), hedge funds (22%) and high dividend (18%).
Van Nieuwenhuijzen continues: “In the current investment climate there are a great number of pockets of opportunity for investors – but also a great number of potential pitfalls. It is therefore important for investors to deploy the right strategy to ensure yield whilst simultaneously mitigating market turbulence. Indeed, our survey reveals that 46% of investors have diversified their portfolios to manage risk over the past year, and we believe that multi-asset strategies such as balanced or total return funds provide investors with the exposure to risk that provide them with a steady yield stream – even in an uncertain economic landscape.”
When looking at the asset classes most favoured in terms of risk versus return over the coming three months, investors stated a preference for equities (34%), followed by real estate (17%) and government bonds (14%). The most favourable geographical regions in terms of risk versus return were the US (46%), Japan (38%) and the Eurozone (29%).
Photo: Natesh Ramasamy
. Deutsche Bank Group Announces The Sale of Its India Asset Management Business
Deutsche Bank Group announced that it has entered into an agreement to sell its India asset management business to Pramerica Asset Managers Pvt. Ltd., subject to customary closing conditions and regulatory approvals.
Pramerica Asset Managers is the asset management business in India of Pramerica Investment Management (PIM), whose multi-manager asset management businesses collectively rank among the top 10 institutional money managers in the world, according to Pensions & Investments. The sale is a continuation of Deutsche Asset & Wealth Management’s global initiative to further focus its business on developing and strengthening its regional centres of investment excellence, with the ultimate aim of delivering consistently superior performance to clients across all asset classes and investment strategies.
Ravi Raju, Head of Deutsche Asset & Wealth Management, Asia Pacific, said: “Deutsche Bank Group’s asset management business was established in 2003, and is now the second largest foreign asset manager in India. We have built a strong brand with a well respected investment and coverage team. This solid foundation will be passed on to Pramerica, which is an internationally respected asset manager with broad product capabilities and expertise. We are confident that with Pramerica’s global footprint and track record of integrating and working with local partners in key markets, the business will continue to perform well following the integration. We are committed to working with Pramerica to ensure a smooth transition for clients, staff and other stakeholders.”
Ravneet Gill, Chief Executive Officer, Deutsche Bank Group India said: “The divestment of our asset management business is in line with our strategy of focusing on our core businesses where we can achieve a leadership position. Deutsche Bank Group’s overall India franchise has posted strong financial results, and we remain absolutely committed to further investment and development of our business here given that India is strategically important to the bank’s global growth aspirations.”
Glen Baptist, Chief Executive Officer of Pramerica International Investments, said, “The strong track record of Deutsche Bank Group’s asset management business in India, its talented leadership team, and deep relationships with institutional clients and distribution partners, perfectly complement the sales, investment and product capabilities of our existing business. When the transaction is completed, we will have the scale and platform necessary to make our investment strategies available to clients across India and put us within sight of the top 10 asset management businesses. We are confident that the combined business, and our new joint venture with DHFL, will enable us to achieve our strategic priority of building an industry-leading India asset management business.”
Pramerica’s new JV with DHFL, which will benefit from DHFL’s 30 years of financial services experience in India when the transaction is completed, will be renamed DHFL Pramerica Asset Managers upon regulatory approval.
Deutsche Asset Management established its business in India in 2003 and today has INR 20,720 crore (EUR 2.9 billion) average assets under management (as of quarter Apr-Jun 2015), making it the second-largest 100% foreign-owned asset manager in India.
Over the last decade, the firm has built a strong investment performance track record. Its product portfolio spans debt and equity schemes; domestic and offshore funds.
Deutsche Asset Management (India) is the Mutual Fund business of Deutsche Asset & Wealth Management in India.
Photo: Mark Moz
. Citi Sales Alternative Investor Services Business for $425 million
Citigroup announced that it has reached a definitive agreement to sell itsAlternative Investor Services business, which comprises Hedge Fund Services and Private Equity Fund Services, to SS&C Technologies Holdings for $425 million.
The entire operations of this business, including approximately 1,500 employees, will be transferred to SS&C upon closing.
This transaction is a positive outcome for Alternative Investor Services, including its employees and clients. As a result of this deal, Alternative Investor Services will become part of a known leader in financial services with a demonstrated track record of delivering high-quality products and services to its clients.
The deal is expected to close in the first quarter of 2016, and is subject to regulatory approvals and other customary closing conditions.
Photo: Elliott Brown . Mediobanca to Acquire a Majority Stake in London-Based Credit Manager Cairn Capital
Mediobanca and Cairn Capital Group Ltd have agreed terms for a strategic partnership in which Mediobanca will acquire a majority interest in the London-based, credit asset management and advisory firm.
Cairn Capital was established in 2004 and provides a full range of credit asset management and advisory services, with a particular focus on European credit. As at 30 June 2015, Cairn Capital had $5.6bn of discretionary and legacy assets under management, with a further $9.1bn of assets under long term advice.
Under the terms of the transaction, Mediobanca will acquire 51 per cent. of the share capital of Cairn Capital on completion. The majority will be purchased from Cairn Capital’s institutional shareholders and following which The Royal Bank of Scotland will have no remaining interest. Mediobanca will have the ability to increase its interest in Cairn Capital after three years with an option to acquire some or all of the remaining 49 per cent., the majority of which is held by the management and staff of Cairn Capital.
As part of its overall strategy, Mediobanca is strongly committed to the development of an international Alternative Asset Management business, achieved through strategic partnerships with selected asset managers, having strong track records, high quality management teams, and scalable platforms. Cairn Capital will fulfill a central role within the MAAM credit platform and is well positioned to benefit from Mediobanca’s distribution channels, network of investor relationships and market access, as well as its institutional infrastructure and support.
Paul Campbell will continue to be CEO of the company and has agreed, together with the rest of Cairn Capital’s management team, to enter into new, longer term contracts in conjunction with the transaction, ensuring continued strength and stability to the business.
The transaction value does not have a material impact on CET1 of Mediobanca Group.
Dario Epstein, Director at Research for Traders and member of the Advisory Board of Biscayne Capital - Courtesy Photo. "Just as in Life, in the Markets, it’s: Nothing Ventured, Nothing Gained"
“This crisis is new. Many of the large fund management companies talk about the “new normal” and, unfortunately, it is very difficult to extrapolate past experience and project it in order to resolve the current situation. Looking in retrospect no longer helps. We are charting a new path along the way, and the prudence partly stems from there: that the path is new”. That’s how Dario Epstein summarizes the current environment and the wait-and-see attitude of investors, with cash at the ready. But, just as in life, in the markets, it’s nothing ventured, nothing gained, he reflects. Epstein is Director at Research for Traders and recently joined the Advisory Board which Biscayne Capital created earlier this year.
When asked about the purpose for his joining the company, Epstein explains that private banking is currently going through a very dynamic phase driven by several factors, the most important of which is the regulatory factor. As a result, in recent months, the compliance department of the institutions has been strengthened significantly. Secondly, there’s the fiscal or tax issue, which has caused the United States, through FATCA, as well as other countries, to focus on trying to eliminate the loop holes, or tax havens, which facilitate tax evasion. In this context, the commercial development of wealth management networks poses a challenge to which the industry is responding. His experience as a former regulator, as well as in market analysis, allows the organization to be focused in these new aspects, and he contributes both his own personal input, as well as that of his company, in order to work more efficiently in the management of portfolios and investment recommendation.
Which products are the most interesting for the Biscayne Capital type of client in the current market environment?
Against this backdrop (China slowing, high probability of rising rates in the US, falling commodity prices, devaluation by China), we are currently adding coverage and protection for long positions and maintaining liquid reserves, although each profile, objectives, and risk appetite has its specific recommendation.
Indeed, in the past few days we have awakened to several consecutive devaluations of the renminbi, and commodity prices at historic lows, how far could this go?
China upset the apple cart and surprised everyone. While devaluation is not important, the impact it later had on all the variables was, deepening the crisis in the currency and equity markets of emerging countries in particular, which are currently less competitive at exporting to China. Even the People’s Bank of China could not stop the trend, indicating on the third day that there is no basis for further depreciation of the yuan (at around 6.40 USDCNY) due to the strong economic fundamentals of the country. That is precisely what is being questioned in the markets. Thursday’s close saw three straight days of devaluation. It is true that the strong fiscal and international reserves position provide good support for the exchange rate, but the slowdown is greater than expected and devaluation was a last resort.
I worry that China may abandon the development of the domestic market, which is its point of inflection in order to grow internally, and devalue its currency for the purpose of increasing competitiveness of its external sector and exports. There are two references (yen and euro)which have devalued strongly in recent years, and with the currencies of emerging countries in sharp depreciation against the dollar, it was to be expected that China take some compensatory measures.
With regard to the prices of commodities, they are very low, my opinion is that they are finding their footing and we expect some insignificant technical rebound. What we do see is that the shares of emerging countries, net exporters of commodities, still have a wide margin of decline, measured in terms of multiples, and may yet fall another 15% -20%.
The Shangay Composite has lost 3.4 trillion dollars and received injections of 900 billion renminbi, according to Goldman Sachs, who says that the regulator still has more than 160 billion dollars: will they have to use them?
It Depends. China is investing money in the market to avoid losses through purchases or provisions to short selling. Obviously the Chinese market has been impacted by two factors: firstly, the monthly addition of millions of new accounts of the country’s residents and, secondly, some slippage in the margin lending which led stock prices to a bubble, contrary to what was going on in the real economy. According to some Chinese market experts this market is extremely trend follower. In this case, the losses were not greater because many companies have suspended their stock exchange and it is now in the hands of the regulator to calm the markets. As I published a few days ago, the Chinese have discovered that capitalism is not easy.
Goldman analysts also believe that the index will range between 3,000 and 4,000 in the short term. Is that possible?
Yes it is, but only if the regulator continues to participate in the process. If it breaks 3,400 there is no significant resistance until 2,800. If the regulator is not involved, the 3,000 barrier will be broken. Although there may be an abrupt change following a more aggressive devaluation; if the currency starts to devalue, the market trend may change.
What does the supposed beginning of rate hikes by the FED add to this situation?
If the FED starts to eliminate all incentives, there will be a negative impact on global growth and the strength of the dollar will increase. The impact of a rise of a quarter point will be liquefied in the first two months. If the market goes up, you run the risk that more investors follow the trend and that we enter into a period of more complex markets in mid-2016.
How will this affect the stock markets in the American continent?
The effect will spread. Brazil is being very badly affected. Its neighbors (Colombia, Peru) will notice the impact on the region, and in Venezuela, where oil is the strong point, it will have great effect. It is very difficult to find countries in the region that are isolated. In terms of currencies and commodity prices we have seen the worst. While there is room for depreciation, we will stabilize in this situation. Some currencies have already devalued; we could be finding a point of balance of the Real at around 3.50. Same with commodities. Not so with the shares, they could still fall.
Which LatAm markets and sectors offer the lowest risk?
Right now our position is more conservative in Latin America.
Brazil is in a very complicated process, entering a recession with negative growth projected in 2015 and 2016. Venezuela is being hit hard, Ecuador going through a difficult process. Basically, after 10 years of very favorable terms for the region, the countries which had the vision to invest in infrastructure and to generate twin surplus (balance of payments and foreign trade), and those who managed to create reserves and countercyclical funds to weather this situation will mark the difference. Brazil has 300 billion dollars in reserves; Peru, Colombia, and Chile also have good reserves.
With respect to Argentina, the markets discern that any of the presidential candidates will have a much more pro-market and international integration rationale. In this backdrop, Argentine assets, which have been underweight in the past, may have an interesting evolution, as so far as other emerging markets do not derail.
Then, where should one be right now?
Cash. The wealthiest families have a high dose of cash and are very expectant. There is much awareness that part of the growth of real estate prices, stocks, and bonds are a result of monetary stimulus, and not of market fundamentals. And at certain prices investors prefer to continue in cash, AAA short-term bonds, banks … the scenario can change within 10 days. In this environment, the strategy is very short-term, waiting on opportunities that may result from the FOMC meeting of the FED, from an acceleration of devaluation in China, or from other macro scenarios.
Is Greece a closed issue?
Today it’s a closed issue, within a year we will have to discuss Greece again because with the current austerity plan, Greece cannot grow. Spain, Italy, and Portugal are facing similar situations: high youth unemployment and austerity. While it is true that a country can’t live in permanent deficit, there are times that countercyclical policies are necessary, and the orthodox prescription of the IMF and Germany is not helping the peripheral economies in Europe to takeoff.
This year we have elections in Spain, Portugal and Ireland. The poor performance by the political left in Greece has weakened the chances for similar groups to gain power in other countries where there is a social demand which must be addressed. Let’s say that the Greek issue is now concealed for a while.
Photo: Dan Nguyen
. S&P Dow Jones Indices Launches Spin-Off, IPO and Activist Interest Indices
S&P Dow Jones Indices (S&P DJI) has announced the launch of the S&P U.S. Spin-Off index, the S&P U.S IPO and Spin-Off index and the S&P U.S. Activist Interest index. These three new indices broaden S&P DJI’s event driven index family which includes merger arbitrage indices.
The S&P U.S. Spin-Off index is designed to measure the performance of U.S. companies that have been spun-off from a parent company within the last four years. It is based on the S&P U.S. Broad Market Index (BMI). At each monthly rebalancing, spin-offs that are added to the U.S. BMI and have a float-adjusted market capitalization of at least $1 billion are added to the Index and remain in the Index for up to four years.
The S&P U.S. IPO and Spin-Off index calculates the performance of U.S. companies with in the S&P U.S. BMI that have had initial public offerings (IPOs) or have been spun-off from a parent company within the last five years. The spin-offs should have a float-adjusted market capitalization of at least $1 billion as of the rebalancing reference date while the IPOs are subject to the same criteria but as of the close of their first day of trading.
The S&P U.S. Activist Interest index measures the performance of U.S. domiciled companies that have been targeted by activist investors within the last 24 months. It is an equal-weighted index based on the S&P U.S. BMI. Companies subjected to an activist investor campaign as determined by SEC Form 13D filings are added to the Index, at each monthly balancing, and remain in the Index for a maximum of 24 months.
“Boards of American companies have become more active in pursuing spinoff opportunities and merger activity,” says Vinit Srivastava, Senior Director of Strategy Indices at S&P Dow Jones Indices. “Historically, spin-offs, IPOs and firms targeted by activist investors have generally outperformed the broad market as they uncover value and increase efficiencies. These three new indices, in addition to our existing S&P Merger Arbitrage Index, provide investors sophisticated and transparent benchmarks that reflect how these significant events impact a company’s performance.”
